SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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14a-6(e)(2))
[ ] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
A.B. WATLEY GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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A.B. WATLEY GROUP INC.
40 Wall Street
New York, New York 10005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD O, 2003
New York, New York
, 2003
An Annual Meeting of Stockholders (the "Annual Meeting") of A.B.
Watley Group Inc., a Delaware corporation (the "Company"), will be held at o on
o, 2003 at 10:00 AM (local time) for the following purposes:
1. To elect three directors to the Corporation's Board of Directors, to
hold office until their successors are elected and qualified or until
their earlier resignation or removal (Proposal No. 1);
2. To ratify financing transactions requiring potential stock issuances
in excess of currently authorized capital stock (Proposal 2);
3. To amend the Company's certificate of incorporation to increase the
authorized number of common stock from 20,000,000 shares to 50,000,000
shares (Proposal No. 3);
4. To adopt the 2003 Stock Option Plan (Proposal No. 4);
5. To consider and act upon a proposal to ratify the Board of Directors'
selection of Marcum & Kliegman LLP as the Corporation's independent
auditors for the fiscal years ending September 30, 2003 and September
30, 2002 (Proposal No. 5);
6. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
BECAUSE OF THE SIGNIFICANCE OF THESE PROPOSALs TO THE COMPANY AND ITS
SHAREHOLDERS, IT IS VITAL THAT EVERY SHAREHOLDER VOTES AT THE ANNUAL MEETING IN
PERSON OR BY PROXY.
The foregoing items of business are more fully described in the Proxy
Statement that is attached and made a part of this Notice.
The Board of Directors has fixed the close of business on o, 2003 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Your vote is important regardless of the number of shares you own.
Whether or not you plan to attend the meeting, please take the time to vote by
mail. Fill in, sign and date the enclosed proxy card and return it promptly in
the postage-paid envelope.
You may attend the meeting and vote in person even if you have
previously voted by proxy by mailing in your proxy. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
Steven Malin, Chairman
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IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
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A.B. WATLEY GROUP INC.
40 Wall Street
New York, New York 10005
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of A.B. Watley Group Inc., a Delaware
corporation (the "Company"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at o on
o, 2003 at 10:00 AM (local time), and any adjournment or postponement thereof.
Only holders of record of the Company's common stock, $.001 par value per share
(the "Common Stock"), on o, 2003 (the "Record Date") will be entitled to vote at
the Meeting. At the close of business on the Record Date, the Company had issued
and outstanding o shares of Common Stock.
In accordance with the Company's bylaws, the presence of a majority of
the shares entitled to vote, whether present in person or represented by proxy,
will constitute a quorum at the meeting. Abstentions will be treated as shares
that are present and entitled to vote but against any proposal submitted to
stockholders. Executed proxies returned by a broker holding shares of the
Company's Common Stock in street name which indicate that the broker does not
have discretionary authority as to certain shares to vote on one or more matters
("broker non-votes") will be considered present but not entitled to vote on any
proposal submitted to stockholders
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to its exercise. Any proxy given is revocable
prior to the Meeting by an instrument revoking it or by a duly executed proxy
bearing a later date delivered to the Secretary of the Company. Such proxy is
also revoked if the stockholder is present at the Meeting and elects to vote in
person.
The Company will bear the entire cost of preparing, assembling,
printing and mailing the proxy materials furnished by the Board of Directors to
stockholders. Copies of the proxy materials will be furnished to brokerage
houses, fiduciaries and custodians to be forwarded to the beneficial owners of
the Common Stock. In addition to the solicitation of proxies by use of the mail,
some of the officers, directors and regular employees of the Company may
(without additional compensation) solicit proxies by telephone or personal
interview, the costs of which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent
or given to stockholders on or about o, 2003.
Stockholders of the Company's Common Stock are entitled to one vote for
each share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific
instruction is given) which is not revoked will be voted "FOR" each of the
proposals as described in this Proxy Statement and, at the proxy holders'
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual
Meeting of Stockholders has been approved will be determined as follows. The
affirmative vote of the holders of a plurality of the shares of the Company cast
at the Annual Meeting is required for the election of directors (Proposal No.
1). The affirmative vote of the holders of a majority of the outstanding shares
of the Company present or represented by proxy and entitled to vote on the
matter is required to:
o ratify financing transaction requiring potential stock issuances in
excess of currently authorized capital stock (Proposal No. 2);
o adopt the 2003 Stock Option Plan (Proposal No. 4); and
o consider and act upon a proposal to ratify the Board of Directors'
selection of Marcum & Kliegman LLP as the Corporation's independent
auditors for the fiscal years ending September 30, 2003 and September
30, 2002 (Proposal No. 5).
1
The affirmative vote of the holders of a majority of the outstanding shares of
the Company is required to amend the Company's certificate of incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
50,000,000 (Proposal No. 3).
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The board of directors (the "Board") proposes the election of Steven
Malin, Robert Malin and Mark Chambre for a term of one year. Following is
information about each nominee, including biographical data for at least the
last five years. Should one or more of these nominees become unavailable to
accept nomination or election as a director, the individuals named as proxies on
the enclosed proxy card will vote the shares that they represent for the
election of such other persons as the Board may recommend, unless the Board
reduces the number of directors.
The Board has long adhered to governance principles designed to assure
the continued vitality of the Board and excellence in the execution of its
duties. Accordingly, directors are compensated for their service to the Company
pursuant to the terms of their employment agreements. The Board is responsible
for supervision of the overall affairs of the Company. In fiscal 2002, the
Board's business was conducted at five meetings of the board of directors.
Following the Annual Meeting, the Board will consist of three directors. The
term of each director continues until the next annual meeting or until
successors are elected. The nominees for director are:
o Steven Malin, Chairman of the Board and Director
o Robert Malin, Vice Chairman, President of A.B. Watley, Inc. and
Director
o Mark Chambre, Director
The biographies of each of the nominees are located immediately after
Proposal No. 5.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL THE ABOVE NOMINEES.
3
GENERAL INFORMATION REGARDING PROPOSALS 2 AND 3
Overview
The Company currently has authorized capital stock consisting of
20,000,000 common shares, $.001 par value, of which 12,508,852 shares are issued
and outstanding and 1,000,000 preferred shares, $.001 par value, of which 630
Series A Redeemable Convertible Preferred Stock are issued and outstanding.
Shares "outstanding" include only shares held by shareholders of the Company,
while shares "issued" also include treasury shares held by the Company itself.
Since March 2002, the Company issued warrants that may potentially
require an issuance of shares greater than the number of shares that the Company
currently is authorized to issue. By issuing these securities, the Company has
exhausted its 20,000,000 authorized shares of common stock and cannot meet any
equity-based obligations entered into after March 2002 without shareholder
approval for an increase in the number of authorized shares.
For a complete description of the terms of the transaction, see
"Proposal No. 2 - Ratification Of Financing Transaction Requiring Potential
Stock Issuances In Excess Of Currently Authorized Capital Stock Proposal" below.
Transactional Effects on Capitalization of the Company
As previously stated, performance of the Company's obligations pursuant
to the transaction entered into since March 2002, contemplates the issuance of
shares of its common stock beyond its authorized capital. The following table
describes its capitalization (i) prior to the transaction entered since March
2002, (ii) after giving effect to the transaction entered into since March 2002,
and (iii) as adjusted to give effect to the changes that would result to the
Company's capitalization assuming approval of Proposal 2 and Proposal 3:
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AS ADJUSTED TO GIVE AS ADJUSTED TO
PRIOR TO MARCH EFFECT TO THE REFLECT APPROVAL
2002 TRANSACTION SINCE OF PROPOSAL 2
SECURITIES AUTHORIZED AND OUTSTANDING MARCH 2002 AND PROPOSAL 3
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Common Shares Authorized 20,000,000 20,000,000 50,000,000
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Common Shares Outstanding 12,508,852 12,508,852 12,508,852
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Warrants Outstanding 3,047,405 7,125,036 7,125,036
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Employee Stock Option Plan 3,600,000 3,600,000 3,600,000
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Total Excess (Deficit) of Common Shares Authorized 843,743 (3,233,888) 26,766,112
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As the table above illustrates, performance of the Company's
obligations pursuant to the transaction entered into since March 2002,
contemplates the issuance of 3,233,888 shares of the Company's common stock
beyond its authorized capital. The Board of Directors of the Company have
approved presentation of proposals to ratify the above transaction in light of
the fact that it did not have sufficient share capital to enter in the
agreements (Proposal 2), and to authorize sufficient capital to fully perform
its obligations under the agreements (Proposal 3). Unless its shareholders
approve both Proposal 2 and Proposal 3, the Company will be unable to perform
its obligations under the agreements and will be in default pursuant to the
terms of the agreements. Management of the Company believes that it is highly
likely that such default will require the Company to substantially curtail or
cease its operations, and may result in a total loss of your investment in the
Company.
Potential Effect of Approval or Denial of Proposal 2 and Proposal 3
The Company's commitments to issue shares beyond our authorized capital
as required by the exercise of the aforementioned securities requires
authorization by the Company shareholders (Proposal 2) and can only be met if
the Company's shareholders approve its proposed increase in authorized shares
(Proposal 3).
Unless the Company's shareholders approve these transactions (Proposal
2) and approve an amendment to the Company's certificate of incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
4
50,000,000 (Proposal 3), the Company will be unable to perform its obligations
under the options and warrants and will be in default pursuant to the terms of
the warrants. Management of the Company believes that it is highly likely that
such default will require the Company to substantially curtail or cease its
operations, and may result in a total loss of your investment in the Company.
Approval of Proposal 2 and Proposal 3 will allow the Company to perform
its obligations under the agreements described above, but may involve the
following negative effects:
o The issuance of shares upon exercise of the warrants may result in
substantial dilution to the interests of other stockholders. This risk
of dilution is especially great in light of the fact that the exercise
prices of the warrants issued in connection with the warrants are
subject to adjustment upon the occurrence of certain events,
including:
o subdivisions or combinations of the common stock;
o reclassifications, consolidations or mergers; and
o the issuance of common stock as a dividend on shares of
common stock.
o The sale of the underlying shares of common stock or even the
potential of such exercise or sale may have a depressive effect on the
market price of our securities;
o The sale of the large number of shares to be issued pursuant to the
agreements described in Proposal 2 may adversely affect the market
price of the Company's common stock; and
o The terms upon which the Company will be able to obtain additional
equity capital may be adversely affected since the holders of
outstanding options and warrants can be expected to exercise them, to
the extent they are able, at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more
favorable to it than those provided in the options or warrants.
5
PROPOSAL NO. 2
RATIFICATION OF FINANCING TRANSACTIONS
REQUIRING POTENTIAL STOCK ISSUANCES
IN EXCESS OF CURRENTLY AUTHORIZED CAPITAL STOCK
As described above in the preceding section General Information
Regarding Proposals 2 and 3, the Company has entered into a financing agreements
since March 2002, that potentially requires an issuance of shares greater than
the number of shares that the Company is currently authorized to issue. The
Company's commitment to issue shares as may be required by these agreements can
only be met if the Company's shareholders approve its proposed increase in
authorized shares (Proposal 3). This Proposal seeks ratification of this
financing transaction in light of their requirement of potential issuances of
common stock beyond the Company's authorized capital. The following table and
subsequent narrative describes the material terms of each of this transaction.
SHARES TO BE ISSUED PURSUANT TO AGREEMENTS
ENTERED INTO WITH INADEQUATE
AUTHORIZED SHARE CAPITAL
Warrants - Notes Payable to Officers 2,402,631
Warrants - Receipt of Subordinated Loan 500,000
Warrants - Line of Credit 1,050,000
Warrants Issued to Officers in Consideration of Forgiveness of Notes Payable
In September 2002, in consideration of the forgiveness of notes payable
to officers aggregating $2,400,000, the Company issued warrants to purchase
1,479,486 and 923,145 shares of common stock to officers, exercisable at $0 and
$1.80 per share respectively. The warrants are immediately exercisable and will
expire in September 2007.
Warrants Issued in Consideration of Receipt of a Subordinated Loan
On January 15, 2003, the Company entered into a secured demand note
agreement for $5,000,000 with a maturity date of June 30, 2004. The loan bears
an interest rate of 7% per annum, payable monthly. In connection with the
agreement, the Company issued warrants to purchase 500,000 shares of common
stock at $0.75 per share. The warrants are immediately exercisable and will
expire in January 2008.
Warrants Issued in Consideration of Receipt of a Line of Credit
In March 2002, the Company was granted a line of credit of $4,200,000
from a group of investors, which was subsequently increased to $4,350,000.
Borrowings under the line of credit were payable on demand after June 18, 2002,
with interest payable at 10%. Additionally, one member of the group was granted
warrants to purchase 1,000,000 shares of the Company's common stock at an
exercise price of $.918 per share in connection with the loan facility and a
consultant retained by a member of the group was also granted warrants to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$.918 per share.
Unless the Company's shareholders approve these transactions by
approval of this Proposal 2, the Company will be in default pursuant to the
terms of these agreements. Management of the Company believes that it is highly
likely that such default will require the Company to substantially curtail or
cease its operations, and may result in a total loss of your investment in the
Company.
Approval of this proposal requires the affirmative vote of the majority
of the shares present in person or represented by proxy and entitled to vote at
the Annual Meeting.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE FINANCING TRANSACTIONS
REQUIRING POTENTIAL STOCK ISSUANCES IN EXCESS OF CURRENTLY AUTHORIZED CAPITAL
STOCK
6
PROPOSAL NO. 3
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
FROM 20,000,000 TO 50,000,000 SHARES
The Board of Directors has approved an amendment to the Certificate of
Incorporation to increase the number of authorized shares of common stock from
20,000,000 to 50,000,000. The Company has authorized capital stock consisting of
20,000,000 common shares, $.001 par value, of which o shares are issued and
outstanding, and 1,000,000 preferred shares, $.001 par value, of which 630
Series A Redeemable Convertible Preferred Stock are issued and outstanding. As
described above in the preceding section (General Information Regarding
Proposals 2 and 3), the Company currently has additional outstanding securities
and agreements that allow for rights exercise that would require the issuance of
up to 3,233,888 additional shares of its common stock. The Company currently
authorized shares can only satisfy the exercise of securities that the Company
issued prior to March 2002. The Company's commitments to issue shares in the
future as required by the securities issued after March 2002 can only be met if
the Company's shareholders approve this proposed increase in authorized shares
(Proposal 3).
When issued, the additional shares of common stock authorized by the
amendment will have the same rights and privileges as the shares of common stock
currently authorized and outstanding. Holders of common stock have no preemptive
rights and, accordingly, shareholders would not have any preferential rights to
purchase any of the additional shares of common stock when such shares are
issued.
Having a substantial number of authorized but unissued shares of common
stock that are not reserved for specific purposes will allow us to take prompt
action with respect to corporate opportunities that develop, without the delay
and expense of convening an annual meeting of shareholders for the purpose of
approving an increase in the Company's capitalization. The issuance of
additional shares of common stock may, depending upon the circumstances under
which such shares are issued, reduce shareholders' equity per share and may
reduce the percentage ownership of common stock by existing shareholders. It is
not the present intention of the Board of Directors to seek shareholder approval
prior to any issuance of shares of common stock that would become authorized by
the amendment unless otherwise required by law or regulation. Frequently,
opportunities arise that require prompt action, and it is the belief of the
Board of Directors that the delay necessitated for shareholder approval of a
specific issuance could be to the detriment of the Company and its shareholders.
The increase in the authorized number of shares of the Company's common
stock under the proposed amendment could be used by its Board of Directors to
make more difficult, and thereby discourage, delay or prevent, an attempt to
acquire control of the Company. For example, the shares could be privately
placed with purchasers who might support the Company's Board of Directors in
opposing a hostile takeover bid. The issuance of the new shares also could be
used to dilute the stock ownership and voting power of a third party seeking to
remove directors, replace incumbent directors, accomplish certain business
combinations or alter, amend or repeal provisions of the Company's articles of
incorporation or bylaws. To the extent that it impedes any such attempts, the
issuance of shares following the adoption of the proposed amendment may serve to
perpetuate existing management. While the proposed amendment may have potential
antitakeover effects, this proposal is not prompted by any specific effort or
takeover threat currently perceived by the Company's Board of Directors or
management. Although under Delaware law our Board of Directors is required to
make any determination to issue such stock based on its judgment as to the best
interests of its shareholders, its Board of Directors could act in a manner that
would discourage an acquisition attempt or other transaction that some, or a
majority, of its shareholders might believe to be in their best interests or in
which shareholders might receive a premium for their stock over the then market
price of such stock.
Unless the Company's shareholders approve an amendment to its
certificate of incorporation to increase the number of authorized shares of
common stock from 20,000,000 to 50,000,000 through this Proposal 3, the Company
will be unable to perform its obligations under the agreements described in
Proposal 2 and will be in default pursuant to the terms of those agreements.
Management of the Company believes that it is highly likely that such default
will require the Company to substantially curtail or cease its operations, and
may result in a total loss of your investment in the Company.
Approval of this proposal requires the affirmative vote of a majority
of the shares of the Company's outstanding stock.
7
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION TO INCREASE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK.
8
PROPOSAL NO. 4
APPROVAL OF THE 2003 EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve the 2003 Employee Stock Option Plan (the "2003 Option Plan") and to
authorize 2,000,000 shares of Common Stock for issuance thereunder. The
following is a summary of principal features of the 2003 Option Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 2003 Option Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Company's Secretary, Robert Malin, at the Company's principal offices 40 Wall
Street, New York, New York 10005.
GENERAL
The 2003 Option Plan was adopted by the Board of Directors. The Board
of Directors has initially reserved 2,000,000 shares of Common Stock for
issuance under the 2003 Option Plan. Under the Plan, options may be granted
which are intended to qualify as Incentive Stock Options ("ISOs") under Section
422 of the Internal Revenue Code of 1986 (the "Code") or which are not
("Non-ISOs") intended to qualify as Incentive Stock Options thereunder.
The 2003 Option Plan and the right of participants to make purchases
thereunder are intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
2003 Option Plan is not a qualified deferred compensation plan under Section
401(a) of the Internal Revenue Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
PURPOSE
The primary purpose of the 2003 Option Plan is to attract and retain
the best available personnel for the Company in order to promote the success of
the Company's business and to facilitate the ownership of the Company's stock by
employees. In the event that the 2003 Option Plan is not adopted the Company may
have considerable difficulty in attracting and retaining qualified personnel,
officers, directors and consultants.
ADMINISTRATION
The 2003 Option Plan, when approved, will be administered by the
Company's Board of Directors, as the Board of Directors may be composed from
time to time. All questions of interpretation of the 2003 Option Plan are
determined by the Board, and its decisions are final and binding upon all
participants. Any determination by a majority of the members of the Board of
Directors at any meeting, or by written consent in lieu of a meeting, shall be
deemed to have been made by the whole Board of Directors.
Notwithstanding the foregoing, the Board of Directors may at any time,
or from time to time, appoint a committee (the "Committee") of at least two
members of the Board of Directors, and delegate to the Committee the authority
of the Board of Directors to administer the Plan. Upon such appointment and
delegation, the Committee shall have all the powers, privileges and duties of
the Board of Directors, and shall be substituted for the Board of Directors, in
the administration of the Plan, subject to certain limitations.
Members of the Board of Directors who are eligible employees are
permitted to participate in the 2003 Option Plan, provided that any such
eligible member may not vote on any matter affecting the administration of the
2003 Option Plan or the grant of any option pursuant to it, or serve on a
committee appointed to administer the 2003 Option Plan. In the event that any
member of the Board of Directors is at any time not a "disinterested person", as
defined in Rule 16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange
Act of 1934, the Plan shall not be administered by the Board of Directors, and
may only by administered by a Committee, all the members of which are
disinterested persons, as so defined.
ELIGIBILITY
Under the 2003 Option Plan, options may be granted to key employees,
officers, directors or consultants of the Company, as provided in the 2003
Option Plan.
9
TERMS OF OPTIONS
The term of each Option granted under the Plan shall be contained in a
stock option agreement between the Optionee and the Company and such terms shall
be determined by the Board of Directors consistent with the provisions of the
Plan, including the following:
(a) PURCHASE PRICE. The purchase price of the Common Shares subject to each
ISO shall not be less than the fair market value (as set forth in the
2003 Option Plan), or in the case of the grant of an ISO to a Principal
Stockholder, not less that 110% of fair market value of such Common
Shares at the time such Option is granted. The purchase price of the
Common Shares subject to each Non-ISO shall be determined at the time
such Option is granted, but in no case less than 85% of the fair market
value of such Common Shares at the time such Option is granted.
(b) VESTING. The dates on which each Option (or portion thereof) shall be
exercisable and the conditions precedent to such exercise, if any,
shall be fixed by the Board of Directors, in its discretion, at the
time such Option is granted.
(c) EXPIRATION. The expiration of each Option shall be fixed by the Board
of Directors, in its discretion, at the time such Option is granted;
however, unless otherwise determined by the Board of Directors at the
time such Option is granted, an Option shall be exercisable for ten
(10) years after the date on which it was granted (the "Grant Date").
Each Option shall be subject to earlier termination as expressly
provided in the 2003 Option Plan or as determined by the Board of
Directors, in its discretion, at the time such Option is granted.
(d) TRANSFERABILITY. No Option shall be transferable, except by will or the
laws of descent and distribution, and any Option may be exercised
during the lifetime of the Optionee only by him. No Option granted
under the Plan shall be subject to execution, attachment or other
process.
(e) OPTION ADJUSTMENTS. The aggregate number and class of shares as to
which Options may be granted under the Plan, the number and class
shares covered by each outstanding Option and the exercise price per
share thereof (but not the total price), and all such Options, shall
each be proportionately adjusted for any increase decrease in the
number of issued Common Shares resulting from split-up spin-off or
consolidation of shares or any like Capital adjustment or the payment
of any stock dividend.
Except as otherwise provided in the 2003 Option Plan, any Option
granted hereunder shall terminate in the event of a merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation of the Company. However, the Optionee
shall have the right immediately prior to any such transaction to
exercise his Option in whole or in part notwithstanding any otherwise
applicable vesting requirements.
(f) TERMINATION, MODIFICATION AND AMENDMENT. The 2003 Option Plan (but not
Options previously granted under the Plan) shall terminate ten (10)
years from the earlier of the date of its adoption by the Board of
Directors or the date on which the Plan is approved by the affirmative
vote of the holders of a majority of the outstanding shares of capital
stock of the Company entitled to vote thereon, and no Option shall be
granted after termination of the Plan. Subject to certain restrictions,
the Plan may at any time be terminated and from time to time be
modified or amended by the affirmative vote of the holders of a
majority of the outstanding shares of the capital stock of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the State of Delaware.
FEDERAL INCOME TAX ASPECTS OF THE 2003 OPTION PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE PURCHASE OF
SHARES UNDER THE 2003 OPTON PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS WITH
SPECIAL TAX STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF
THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX
CONSEQUENCES OTHER THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH
PARTICIPANT TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES
OF PARTICIPATION IN THE 2003 OPTION PLAN AND FOR REFERENCE TO APPLICABLE
PROVISIONS OF THE CODE.
The 2003 Option Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421, 422 and
10
423 of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the 2003 Option Plan.
If the shares are sold or otherwise disposed of (including by way of
gift) more than two years after the first day of the offering period during
which shares were purchased (the "Offering Date"), a participant will recognize
as ordinary income at the time of such disposition the lesser of (a) the excess
of the fair market value of the shares at the time of such disposition over the
purchase price of the shares or (b) 15% of the fair market value of the shares
on the first day of the offering period. Any further gain or loss upon such
disposition will be treated as long-term capital gain or loss. If the shares are
sold for a sale price less than the purchase price, there is no ordinary income
and the participant has a capital loss for the difference.
If the shares are sold or otherwise disposed of (including by way of
gift) before the expiration of the two-year holding period described above, the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income to the participant. This
excess will constitute ordinary income in the year of sale or other disposition
even if no gain is realized on the sale or a gift of the shares is made. The
balance of any gain or loss will be treated as capital gain or loss and will be
treated as long-term capital gain or loss if the shares have been held more than
one year.
In the case of a participant who is subject to Section 16(b) of the
Exchange Act, the purchase date for purposes of calculating such participant's
compensation income and beginning of the capital gain holding period may be
deferred for up to six months under certain circumstances. Such individuals
should consult with their personal tax advisors prior to buying or selling
shares under the 2003 Option Plan.
The ordinary income reported under the rules described above, added to
the actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary
income to a participant only to the extent that ordinary income must be reported
upon disposition of shares by the participant before the expiration of the
two-year holding period described above.
RESTRICTIONS ON RESALE
Certain officers and directors of the Company may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
The Common Stock acquired under the 2003 Option Plan by an affiliate may be
reoffered or resold only pursuant to an effective registration statement or
pursuant to Rule 144 under the Securities Act or another exemption from the
registration requirements of the Securities Act.
REQUIRED VOTE
The approval of the 2003 Option Plan and the reservation of 2,000,000
shares for issuance requires the affirmative vote of the holders of a majority
of the shares of the Company's Common Stock present at the Annual Meeting in
person or by proxy and entitled to vote and constituting at least a majority of
the required quorum.
The proxy holders intend to vote the shares represented by proxies to
approve, the 2003 Stock Option Plan.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2003 STOCK OPTION PLAN.
11
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Marcum & Kliegman LLP has served as the Company's independent auditors
since October 11, 2002 and has been appointed by the Board to continue as the
Company's independent auditors for the fiscal years ending September 30, 2003
and September 30, 2002. In the event that ratification of this selection of
auditors is not approved by a majority of the shares of Common Stock voting at
the Annual Meeting in person or by proxy, the Board will reconsider its
selection of auditors. Marcum & Kliegman LLP has no interest, financial or
otherwise, in the Company.
A representative of Marcum & Kliegman LLP is not expected to be present
at the Annual Meeting.
The proxy holders intend to vote the shares represented by proxies to
ratify and approve the Board of Directors' selection of Marcum & Kliegman LLP as
the Company's independent auditors for the fiscal years ending September 30,
2003 and September 30, 2002.
Audit Fees
Fees related to the services performed by Marcum & Kliegman LLP for the
year ended September 30, 2002 was $336,000.
All Other Fees
The aggregate fees billed by Marcum & Kliegman LLP for services
rendered to the Company, other than the services covered in "Audit Fees" for the
fiscal year ended September 30, 2002 were $-0-.
Approval of this proposal requires the affirmative vote of the majority
of the shares present in person or represented by proxy and entitled to vote at
the Annual Meeting.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
Marcum & Kliegman LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEARS
ENDING SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2003.
12
EXECUTIVE COMPENSATION
Directors are elected at each meeting of stockholders and hold office
until the next annual meeting of stockholders and the election and
qualifications of their successors. Executive officers are elected by and serve
at the discretion of the board of directors.
Our executive officers and directors are as follows:
Name Age Position
------- ----- ----------
Steven Malin 45 Chairman of the Board and Director
John J. Amore 40 Chief Executive Officer
Robert Malin 37 Vice Chairman, President of A.B. Watley, Inc.
and Director
Mark Chambre 41 Director
Steven Malin. Mr. Malin co-founded the Company in May 1996 and has been
its Chairman of the Board since inception. Mr. Malin also served as Chief
Executive Officer from May 1996 to September 2002. From August 1993 to December
1996, Mr. Malin served as a consultant to the Company. From 1987 to 1993, he was
a Senior Foreign Exchange Options Broker for Tullett and Tokyo Forex, Inc., a
global inter-bank money brokering firm with its primary offices located in
London, New York and Tokyo. Mr. Malin attended the Fletcher School of Law and
Diplomacy from 1982 to 1984. He received a bachelor of arts degree from Vassar
College in 1980.
John J. Amore. Mr. Amore has been the Company's Chief Executive Officer
since September 10, 2002. Most recently, Mr. Amore formed and operated VA
Advisors LLC, his own hedge fund until June 2000. This included creating and
executing a successful trading strategy, risk management, raising capital, and
running the day-to-day operations. From 1993 to 1994, Mr. Amore was a manager of
the global "repo" fixed income portfolio for Investment Management Services,
Inc., which provided exclusive execution, financing, technology and back office
services for a $3.5 billion hedge fund. In 1992, Mr. Amore managed international
"repo" correspondent relationships for Bear Stearns & Co. Earlier in his career,
Mr. Amore was an Associate Director at Hamberg & Associates, Inc. in Chicago. He
began his career as a Corporate Operations Analyst at Bear Stearns & Co. in
1982.
Robert Malin. Mr. Malin is a co-founder of the Company and has served
as a director since inception. He has been associated with the Company since
August 1993, initially as General Securities Principal and director of
day-to-day operations and, most recently, serving as President. His earlier
experience includes managing equity trading, client services and brokerage
operations. Mr. Malin and Steven Malin are brothers.
Mark Chambre. Mr. Chambre has served as a director of the Company since
April 1999. Since June 1993, he has served as Senior Broker in the Yen Swaps
Division of the Tokyo Forex Co., Inc. in Tokyo, Japan. From April 1988 to March
1993, Mr. Chambre served as Manager of the Tokyo Forex Co.'s Financial Futures
Division. Mr. Chambre joined its parent company, Tullett and Tokyo, Inc., in New
York in 1983. Mr. Chambre received a bachelor of arts degree from Drew
University in 1982.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended September 30, 2002, based upon an
examination of the public filings, all of our company's officers and directors
timely filed reports on Forms 3 and 4, except for Steven Malin (2 late reports);
Robert Malin (2 late reports); and John Amore (1 late report).
The following table sets forth for the fiscal year indicated the
compensation paid by our company to our Chief Executive Officer and other
executive officers with annual compensation exceeding $100,000:
13
Summary Compensation Table:
Long-Term
Compensation
Annual Compensation --------------------------
Name and Principal Position Fiscal Year Salary Bonus Awards Underlying
Options/SARs (#)
-------------------------- ---------------------------------------------------------------------------------
Steven Malin, 2002 $33,846 $0 800,000
Chairman 2001 110,000 0 30,000
2000 110,000 22,000 0
John J. Amore, 2002 155,766(1) - 1,300,000
Chief Executive Officer 2001 - - -
2000 - - -
Robert Malin 2002 88,846 0 1,300,000
Vice Chairman, President of 2001 0 0 0
A.B. Watley, Inc. and Director 2000 0 0 0
--------------
(1) Mr. Amore was appointed as an officer of the Company in September 2002. All
consideration received by Mr. Amore during the year ended September 2002, was
received as a consultant of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into a four-year employment agreement with
Steven Malin and three-year employment agreements with John J. Amore and Robert
Malin, all of which are automatically renewable for additional one-year terms.
The employment agreements provide for annual base compensation of $110,000 for
Steven Malin and Robert Malin, and $250,000 for Mr. Amore. Each agreement
provides for a discretionary bonus based upon the performance of the Company,
payable semi-annually, as may be approved by the board of directors or a
committee of the board.
Each of the employment agreements requires the officer to devote his
full time and efforts to our business and contains non-competition and
non-disclosure covenants of the officer for the term of his employment and for a
period of two years thereafter. Each employment agreement provides that the
Company may terminate the agreement for cause. In addition, each employment
agreement provides for termination by either party without cause upon at least
180 days written notice prior to the end of the original term or any renewal
term. In the event that either John Amore, Steven Malin or Robert Malin
terminate their employment agreement for good reason or the Company terminates
the employment agreement without cause, then the applicable officer is entitled
to the following:
o annual base salary accrued and a prorated annual bonus prior
to the date of termination;
o annual base salary multiplied by the greater of two (2) (the
"Applicable Factor") or the number of years remaining in the
employee's employment agreement;
o annual bonus multiplied by the greater of Applicable Factor or
the number of years remaining in the employee's employment
agreement;
o continuing health benefits; and
o all outstanding options and other equity shall vest and become
immediately exercisable.
In the event that John Amore, Steven Malin or Robert Malin is terminated within
six (6) months of a change of control within the Company, then the Applicable
Factor shall be three (3).
DIRECTORS' COMPENSATION
All directors are reimbursed for their reasonable expenses incurred in
attending meetings of the board of directors and its committees. Directors who
are employees receive no additional compensation for service as members of the
board of directors or committees. All of our non-employee directors are
compensated annually for their services at $1,000 and granted non-qualified
options to acquire 1,500 shares of our common stock at the end of each year of
service.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to
executive officers named in the Summary Compensation Table during the fiscal
year ended September 30, 2002:
Individual Grants
Number of % of Total Options
Securities Granted to
Name Underlying Employees in Fiscal
Options Granted Year Exercise Expiration Date
(#) Price ($/sh)
- --------- ----------------------------------------------------------------------------
Steven Malin 800,000 23.0% .10 September 9, 2012
John J. Amore 1,300,000 37.4% .10 September 9, 2012
Robert Malin 1,300,000 37.4% .10 September 9, 2012
14
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the number and
value, at September 30, 2002, of unexercised options held by executive officers
named in the Summary Compensation Table:
Number of Securities Underlying Unexercised Options at Value of Unexercised In-the-Money
Name FY-End (#) (Exercisable/Unexercisable) Options at FY-End ($)
(Exercisable/Unexercisable) (1)
- ------- ------------------------------------------------------------------------------------------------------
Steven Malin 250,000 / 550,000 0 / 0
John J. Amore 500,000 / 800,000 0 / 0
Robert Malin 500,000 / 800,000 0 / 0
(1) Fair market value of underlying securities (the closing price of the
Company's common stock at fiscal year end (September 30, 2002) minus
the exercise price.
STOCK OPTION PLANS
On January 27, 1997, the board of directors and stockholders adopted
our 1997 stock option plan, on March 16, 1998, our board of directors and
stockholders adopted our 1998 stock option plan and on November 1, 1999 and
March 14, 2000, the board of directors and stockholders, respectively, adopted
our 1999 stock option plan. The Company reserved 400,000 shares of common stock
for issuance upon exercise of options granted from time to time under the 1997
stock option plan and 800,000 shares of common stock for issuance upon exercise
of options granted from time to time under each of the 1998 and 1999 stock
option plans. The 1997, 1998 and 1999 stock option plans are intended to assist
us in securing and retaining key employees, directors and consultants by
allowing them to participate in our ownership and growth through the grant of
incentive and non-qualified options.
Under each of the stock option plans the Company may grant incentive
stock options only to key employees and employee directors, or the Company may
grant non-qualified options to our employees, officers, directors and
consultants. The 1997 stock option plan is administered by a committee,
appointed by our board of directors, consisting of from one to three directors.
The 1998 and 1999 stock option plans are administered directly by our board of
directors.
Subject to the provisions of each of the stock option plans, either the
board or the committee will determine who shall receive options, the number of
shares of common stock that may be purchased under the options, the time and
manner of exercise of options and exercise prices. The term of options granted
under each of the stock option plans may not exceed ten years or five years for
an incentive stock option granted to an optionee owning more than 10% of our
voting stock. The exercise price for incentive stock options shall be equal to
or greater than 100% of the fair market value of the shares of the common stock
at the time granted; provided that incentive stock options granted to a 10%
holder of our voting stock shall be exercisable at a price equal to or greater
than 110% of the fair market value of the common stock on the date of the grant.
The exercise price for non-qualified options will be set by the board or the
committee, in its discretion, but in no event shall the exercise price of
options granted under the 1997 or 1998 stock option plans be less than the fair
market value of the shares of common stock on the date of grant. The exercise
price may be payable in cash or, with the approval of the board or the
committee, by delivery of shares or by a combination of cash and shares. Shares
of common stock received upon exercise of options granted under each of the
plans will be subject to restrictions on sale or transfer.
As of September 30, 2002, the Company has granted options to purchase
3,579,387 shares of common stock under our stock options plans at an exercise
price ranging from $.10 to $21.50 per share. Of these options, options to
purchase 3,400,000 shares have been granted to our officers and directors. All
of the options granted to such officers and directors terminate on the ten year
anniversary of their grant date.
On October 24, 2000 and July 17, 2001, the board of directors, and
stockholders, respectively, adopted our 2000 stock option plan. The Company has
reserved 1,600,000 shares of common stock for issuance upon exercise of options
granted from time to time under the 2000 stock option plan. The 2000 stock
option plan is intended to assist us in securing and retaining key employees,
directors and consultants by allowing them to participate in our ownership and
growth through the grant of incentive and non-qualified options.
Under the 2000 stock option plan the Company may grant incentive stock
options only to key employees and employee directors, or the Company may grant
non-qualified options to our employees, officers, directors and consultants. The
2000 stock option plan will be administered directly by our board of directors.
15
Subject to the provisions of the 2000 stock option plan, the board will
determine who shall receive options, the number of shares of common stock that
may be purchased under the options, the time and manner of exercise of options
and exercise prices. The term of options granted under the 2000 stock option
plan may not exceed ten years or five years for an incentive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options shall be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted;
provided that incentive stock options granted to a 10% holder of our voting
stock shall be exercisable at a price equal to or greater than 110% of the fair
market value of the common stock on the date of the grant. The exercise price
for non-qualified options will be set by the board, in its discretion. The
exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or by a combination of cash and shares. Shares of common
stock received upon exercise of options granted under the 2000 stock option plan
will be subject to restrictions on sale or transfer.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables sets forth, as of April 7, 2003, the number of and
percent of the Company's common stock beneficially owned by
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without
naming them, and
o persons or groups known by us to own beneficially 5% or more
of our common stock:
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of A.B. Watley Group Inc., 40 Wall Street, New
York, New York 10005.
The Company believes that all persons named in the table have sole
voting and investment power with respect to all shares of common stock
beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can be
acquired by him within 60 days from April 7, 2002 upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants or convertible securities that
are held by him, but not those held by any other person, and which are
exercisable within 60 days of April 7, 2002 have been exercised and converted.
NUMBER OF SHARES
PERCENTAGE OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED(9)
NAME AND ADDRESS OF BENEFICIAL OWNER
- ------------------------------------------------ ------------------------ ------------------------
Steven Malin 2,902,369(1)(2) 23.2%
Penson Financial Services 1,359,052(3) 10.9
On-Site Trading, Inc. 1,513,056 12.1
Franklin Mutual Advisers, LLC 738,999(3) 5.9
DMG Legacy International Ltd. 1,368,600 (4) 10.9
DMG Legacy Institutional Fund 1,368,600 (4) 10.9
DMG Legacy Fund 1,368,600(4) 10.9
SDS Merchant Fund, L.P. 1,481,047(5) 10.9
Linda Malin 2,162,567(1) 17.3
Robert Malin 1,509,000(1)(6) 12.1
Mark Chambre 107,787(7) *
Eric Steinberg 1,525,415 12.2
Anthony Houston 1,048,624 8.4
John J. Amore 500,000(8) 4.0
All directors and executive officers as a group (4 7,181,723 57.4%
persons)
* Less than 1%.
16
(1) The number of shares beneficially owned by Steven, Linda and Robert
Malin include shares held in irrevocable family and charitable trusts for which
they are trustees. In addition, the number of shares held by Steven Malin
includes shares held by a family partnership for which Steven Malin is the
general partner.
(2) The number of shares beneficially owned by Steven Malin includes
250,000 shares of common stock issuable upon exercise of options but does not
include 550,000 shares of common stock issuable upon exercise of options which
are not currently exercisable.
(3) The number of shares beneficially owned by Franklin Mutual
Advisers, LLC includes 425,445 shares of common stock issuable upon exercise of
currently exercisable warrants.
(4) The number of shares beneficially owned by DMG Legacy International
Ltd., DMG Legacy Institutional Fund LLC and DMG Legacy Fund LLC (collectively,
the "DMG Group") are aggregated since such entities are affiliates and includes
(i) 796,650 shares of common stock issuable upon the conversion of shares of
series A convertible preferred stock owned by the DMG Group and (ii) 597,370
shares of common stock issuable upon the exercise of currently exercisable
warrants.
(5) The number of shares beneficially owned by SDS Merchant Fund, L.P.
("SDS") includes (i) 1,169,550 shares of common stock issuable upon the
conversion of shares of series A convertible preferred stock owned by SDS and
(ii) 311,497 shares of common stock issuable upon the exercise of currently
exercisable warrants. The number of shares beneficially owned by SDS does not
include 1,169,550 shares of common stock issuable upon exercise of warrants
which are not currently exercisable. Under the terms of the convertible
preferred stock purchase agreement, SDS is not entitled to convert any portion
of the series A convertible preferred stock or exercise any portion of the
warrants or to dispose of any portion of the series A convertible preferred
stock or warrants to the extent that the right to effect the conversion,
exercise or disposition would result in SDS or any of its affiliates owning more
than 4.95% of the outstanding shares of common stock of our company.
(6)The number of shares beneficially owned by Robert Malin includes
500,000 shares of common stock issuable upon exercise of options but does not
include 800,000 shares of common stock issuable upon exercise of options which
are not currently exercisable.
(7) The number of shares beneficially owned by Mark Chambre does not
include 2,000 shares of common stock owned by his wife, as to which he disclaims
beneficial ownership.
(8) The number of shares beneficially owned by John J. Amore includes
500,000 shares of common stock issuable upon exercise of options but does not
include 800,000 shares of common stock issuable upon exercise of options which
are not currently exercisable.
(9) Based on 12,508,852 shares of common stock currently outstanding.
The address of all of the foregoing parties is c/o our company at 40 Wall
Street, New York, NY 10005 except for On-Site Trading, Inc. whose address is 98
Cutter Mill Road, Great Neck, New York 11021, Franklin Mutual Advisers, LLC
whose address in 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078, SDS
Merchant Fund, L.P. whose address is c/o SDS Capital Partners, One Sound Shore
Drive, Greenwich, Connecticut 06830 and each member of the DMG Group, whose
address is c/o DMG Advisors LLC, One Sound Shore Drive, Greenwich, Connecticut
06830.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal year 2000, the Company borrowed $3,500,000 from officers
and major stockholders. Such loans were comprised of (i) a $3,200,000 loan from
Steven Malin; (ii) a $150,000 loan from a corporation controlled by Steven
Malin; (iii) a $75,000 loan from a corporation controlled by Linda Malin; and
(iv) a $75,000 loan from a corporation controlled by Eric Steinberg. The notes
bear interest ranging from 7% to 10% maturing in two years from the effective
date. In fiscal 2000, Steven Malin had subordinated loans to our company of
$125,000 and $55,000. On April 30, 2000, the subordinated borrowing of $125,000
matured, however Mr. Malin continued to loan our company $125,000 at an interest
rate of 12% with no stated maturity date. The subordinated borrowing of $55,000
bears no interest and is due on October 31, 2002. Our company had a note
receivable in the amount of $128,071 from an officer. The note receivable bears
interst at 6% and is due on demand.
17
During fiscal year 2001, the Company borrowed an additional $850,000
from officers and major stockholders. Total borrowings from officers and
stockholders were: (i) aggregate loans of $1,375,000 from a corporation
controlled by Steven Malin; (ii) aggregate loans of $1,075,000 from a
corporation controlled by Robert Malin; (iii) a $950,000 loan from a corporation
controlled by Linda Malin; and (iv) a $950,000 loan from a corporation
controlled by Eric Steinberg. The notes bear interest ranging from 7% to 10%
maturing in one or two years from the effective date. In fiscal 2001, Steven
Malin had subordinated loans to our company of $125,000 and $55,000. The
subordination agreement for the $125,000 loan was renewed and the $55,000 loan
continued as a subordinated loan maturing in October 2002. Our company had notes
receivable of $103,000 and $131,059 from officers. The notes receivable bear
interest at 6% and are due on demand.
During the fiscal year 2002, in September 2002, in consideration of the
forgiveness of notes payable to officers aggregating $2,400,000, the Company
issued warrants to purchase 1,479,486 and 923,145 shares of common stock to
officers, exercisable at $0 and $1.80 per share, respectively. The warrants were
exercisable as of September 2002 and expire in September 2007. As of the year
ending September 30, 2002, the Company had notes payable to officers in the
amount of $700,000 that bear interest at the rate of 10%. In April 2002,
$2,150,000 of notes payable to officers were assigned to one of the Company's
clearing brokers. Interest in payable at the rate of 10%. The loans expire on
March 2003. In July 2002, this amount was subsequently forgiven as part of the
sale of the Company's software to the clearing broker.
In April 2002, $2,150,000 of notes payable to officers were assigned to
Penson Financial Services, Inc. ("Penson"), which owns approximately 11% of the
Company's outstanding common stock and is a clearing broker for the Company.
Interest was payable on these notes at a rate of 10% per annum and the notes
matured through March 2003. In July 2002, these amounts were subsequently
forgiven as part of the sale of the Company's proprietary software programs (the
"Software") and related intellectual property, to Integrated Trading Solutions,
Inc. ("Integrated"), an affiliate of Penson, pursuant to an Asset Purchase
Agreement dated July 31, 2002 (the "Agreement"). Pursuant to the Agreement, the
Company sold to Integrated, and Integrated purchased and assumed from the
Company all of the Software, certain related intellectual property and contract
rights and certain other assets in exchange for the following consideration:
(i) an immediate reduction of $3,418,015 of debt owed by the Company to
Penson;
(ii) a contingent reduction of additional debt owed by the Company to
Penson of up to $2,150,994 on the earlier of: (a) the date that Penson receives
no less than $5,000,000 in revenues under its clearing agreement with the
Company (provided that such revenues are received during the thirty-six months
after the closing date of the Agreement), or (b) in the event that the Company
raises at least $4,000,000 in new equity capital, which may include forgiveness
of various types of debt;
(iii) the assumption of certain additional identified and to be
identified liabilities of the Company by Integrated;
(iv) the granting of a license by Integrated to the Company that allows
the Company to utilize the Software at favorable rates. The license also
provides for the Company to receive a percentage of future royalties from the
licensing of the Software; and
(v) an amendment to the Company's clearing agreement with Penson.
The amount of consideration received by the Company from Integrated was
determined through arms-length negotiations between the parties. In addition,
prior to consummating the transaction, the Company obtained fairness and
valuation opinions from Appleby Capital, Inc., which opinions stated that the
consideration received by the Company was fair from a financial point of view,
and that the fair market value of the assets being sold, immediately prior to
the sale, were not more than $3,400,000.
The Company believes that prior transactions with our officers,
directors and principal stockholders were on terms that were no less favorable
than the Company could have obtained from unaffiliated third parties. All future
transactions, including loans and advances, between us and our officers,
directors and stockholders beneficially owning 5% or more of our outstanding
voting securities, or their affiliates, will be for bona fide business purposes
and on terms not less favorable to us than the Company could have obtained in
arm's length transactions from unaffiliated third parties.
18
OTHER BUSINESS
The Board of Directors is not aware of any other business that will
come before the Meeting, but if any such matters are properly presented, the
proxies solicited hereby will be voted in accordance with the best judgment of
the persons holding the proxies. All shares represented by duly executed proxies
will be voted at the Meeting.
STOCKHOLDER PROPOSALS
Stockholders who wish to submit proposals pursuant to Rule 14a-8 of the
1934 Act for inclusion in the Proxy Statement for the Company's 2004 Annual
Meeting of Stockholders must submit the same to Robert Malin, the Vice Chairman
of A.B. Watley Group, Inc. on or before October 31, 2003 at the Company's
principal executive office, 40 Wall Street, New York, New York 10005.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
This proxy statement refers to certain documents of the company that
are not presented herein or delivered herewith. Such documents are available to
any person, including any beneficial owner, to whom this proxy statement is
delivered, upon oral or written request, without charge, directed to Robert
Malin, the Vice Chairman, A.B. Watley Group Inc., 40 Wall Street, New York, New
York 10005, (212) 422-1100. In order to ensure timely delivery of the documents,
such requests should be made by o, 2003.
It is important that the proxies be returned promptly and that your
shares be represented. Stockholders are urged to mark, date, execute and
promptly return the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Steven Malin
Steven Malin
Chairman of the Board of Directors
New York, New York
April o, 2003
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PROXY PROXY
A.B. WATLEY GROUP INC.
PROXY FOR ANNUAL MEETING TO BE HELD ON o, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Malin, the Vice Chairman, as
proxy, with the power to appoint his substitute, to represent and to vote all
the shares of common stock of A.B. Watley Group Inc. (the "Company"), which the
undersigned would be entitled to vote, at the Company's Annual Meeting of
Stockholders to be held on o, 2003 and at any adjournments thereof, subject to
the directions indicated on the reverse side hereof.
In their discretion, the proxy is authorized to vote upon any other
matter that may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE,
BUT IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
ALL NOMINEES AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
- -------------------------------------------------------------------------------
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THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
A.B. Watley Group Inc. to be held at o, on o, 2003 at 10:00 a.m. (local time).
Please read the proxy statement which describes the proposals and
presents other important information, and complete, sign and return your proxy
promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-5
1. Election of Directors -- FOR WITHHOLD
NOMINEES:
---------
Steven Malin [_] [_]
Robert Malin [_] [_]
Mark Chambre [_] [_]
(Except nominee(s) written above)
FOR AGAINST ABSTAIN
2. Proposal to ratify financing transactions [_] [_] [_]
requiring potential
stock issuances in excess of currently
authorized capital stock
FOR AGAINST ABSTAIN
3. Proposal to approve an amendment to [_] [_] [_]
the Articles of Incorporation to increase
the number of authorized shares of
common stock
FOR AGAINST ABSTAIN
4. Proposal to adopt the 2003 Stock Option [_] [_] [_]
Plan
FOR AGAINST ABSTAIN
5. Proposal to ratify Marcum & [_] [_] [_]
Kliegman LLP as independent
auditors
If you plan to attend the Annual Meeting please mark this box [_]
Dated:________________, 2003
Signature ____________________________________________________________________
Name (printed) _______________________________________________________________
Title ________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When signing as
attorney, executor, trustee, guardian, corporate officer, etc., please indicate
full title.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
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EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
A.B. WATLEY GROUP INC.
The undersigned, being the President of A.B. Watley Group Inc., a
corporation existing under the laws of the State of Delaware, does hereby
certify under the seal of the said corporation as follows:
1. The certificate of incorporation of the Corporation is hereby
amended by replacing Article Fourth, in its entirety, with the following:
"FOURTH: 1. The total number of shares which the corporation shall
have authority to issue is 51,000,000, all of which have a par value
of $0.001; 50,000,000 of said shares are Common Stock and 1,000,000 of
said shares are Preferred Stock.
2. The powers, preferences and rights, and the
qualifications, limitations and restrictions of the Corporation's
Common Stock and Preferred Stock are as follows:
(a) holders of the Corporation's Common Stock as a
class, have equal ratable rights to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available
therefor and are entitled upon liquidation of the Company to share
ratably in the net assets available for distribution, are not
redeemable and have no pre-emptive or similar rights; and holders of
the Corporation's Common Stock have one non-cumulative vote for each
share held of record on all matters to be voted on by the Corporation's
stockholders.
(b) the shares of Preferred Stock may be issued in
series, and shall have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed
in the resolution or resolutions providing for the issuance of such
stock adopted from time to time by the Board of Directors. The Board of
Directors is hereby expressly vested with the authority to determine
and fix in the resolution or resolutions providing for the issuances of
Preferred Stock the voting powers, designations, preferences and
rights, and the qualifications, limitations or restrictions thereof, of
each such series to the full extent now or hereafter permitted by the
laws of the State of Delaware."
3. The amendment of the certificate of incorporation herein certified
has been duly adopted by the unanimous written consent of the Corporation's
Board of Directors and a majority of the Corporation's stockholders in
accordance with the provisions of Sections 141(f), 228 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of the Corporation's
Certificate of Incorporation, as amended, to be signed by Steven Malin, its
Chairman of the Board of Directors, this __ day of ______ 2003.
A.B. WATLEY GROUP INC.
By:_/S/ ____________________
Steven Malin, Chairman of the Board
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